There’s a big difference between Rs. 499 and Rs. 500

There's a big difference between Rs. 499 and Rs. 500

Even though you know on a conscious level that there is no important difference between those two numbers, our perception of them is radically different because our brain is not very good at equating those digits with a real world quantity. One study suggests it’s because our brain is reading the price like it reads everything else: left to right. It puts a higher value on the first thing we see so no matter what comes after that, we still wind up relating it to the first digit. No matter how much you tell yourself otherwise, Rs.499 still registers as “in the Rs.400 range” rather than “essentially Rs.500.” Or $4.99 still registers in the 4 range than 5.

In one of the most telling experiments, Rutgers University professor Dr. Robert Schindler and his colleagues did a real-life test with a women’s clothing catalog few years ago. The clothing line normally advertised items ending in 99 cents. For the experiment, the researchers divided the 90,000 customers into three groups. One group got catalogs with the traditional prices, one got prices ending in .00 and one got prices ending in .99. The 99-cent catalog significantly outperformed the .00 one, Dr. Schindler said, recording 8 percent higher sales even though the average price decrease was only three-hundredths of a percent.

A 99-cent ending “makes the price ‘feel’ less,” Dr. Schindler said, “and it goes deeper than just appearances. If you give people two ads for a blouse, one priced at $22 and one at $21.99, people are more likely to judge the $21.99 item as being on sale. “And there’s an emotional kick to getting a discount that makes a difference to consumers.”

Retailers also look at 99-cent pricing from the opposite direction, said Britt Beemer, chairman of America’s Research Group, which interviews up to 15,000 people a week to gauge consumer behavior and marketing techniques. “Let’s say your item is $49.99 vs. $49,” Mr. Beemer said.

“There is no perceived difference for most consumers between the two. The consumer looks at the dollar number and forgets the right-hand digits.” From the seller’s standpoint, then, the $49.99 price can yield them almost one extra dollar for each item, with no perceived difference in the price on the part of the buyer. Pretty handy for the US economy, I must say.

Having said that I think that premium retailers and brands, that don’t wish to be associated as a discount label, should have their prices end in round numbers because that will perhaps speak of ‘quality’ more than ‘discount’. What do you think?

Why focus groups cannot be relied upon

Why focus groups cannot be relied upon

Marketers rely a lot on traditional research like focus groups to understand consumer’s motivations toward their brand, product and category. Researchers ask people for their opinion about their product, packaging or concepts to pick insights about their appeal, and get wonderful feedback that is sincere, detailed, and emphatic but has little relation to the truth.

Imagine you’re coming back from a party that was at a lavish penthouse of an industrialist. You say you had a lovely time and I ask you what you liked about it. You say “the drinks”. But did your joy really come from talking to the attractive woman who wrote the latest fictional best seller? Or was it something you really relished like the food? Or was it something subtler, like the quality of the music? Or the scent of citrus that filled the house? Or was it the fact that you got to network with influential people?

Leonard Mlodinow, author of many books including ‘Subliminal’ says, when we come up with an explanation for our feelings and behaviour, our brain searches our mental database of cultural norms and picks something plausible. In the above case, your brain might have asked ‘Why do people enjoy parties?’ and chosen ‘the drinks’ as the most likely hypothesis, if ‘drinks’ happen to conform to a set of standard reasons, expectations, cultural and societal explanations for a given preference.

In a study mentioned in ‘Subliminal’, women were shown four pairs of silk stockings that were absolutely identical, except that each had a different and very faint scent applied to it. The women were asked to choose their favourite and they found no difficulty in telling why one pair was better than the other. They spoke of perceived differences in texture, weave, feel, sheen and weight. Everything but the scent. In reality, stockings with one particular scent were rated the highest, much more often than the others, but the women denied using scent as a criterion. In fact only 6 out of the 250 women even noticed that the stockings had been perfumed.

Truth is we most often don’t understand our own preferences. Despite that, we usually think that we do. And when asked to explain why we feel a certain way, most of us, after giving it some thought, have no trouble supplying many reasons that sound plausible.

It’s a market researchers nightmare – you can’t even trust people to know what they prefer, leave alone why. That’s why we rely on the knowledge of the human brain, human physiology, cognitive neuroscience, behavioural economics and proven experiments conducted by the best in the world to understand human behaviour and create Behavioural Design solutions.

The art of getting customers to buy again

The art of getting customers to buy again

Most of the products come with expiry dates and therefore you know when to replace it, like say, medicines. Or latest fads make you upgrade for a newer version like the iPhone. Or the product simply gets over (juice) or wears out (underwear) and you replace it. But what if you are the manufacturer of a product like a pillow. How can you get your customer to repurchase one after a particular period?

Tontine pillows have a message stamped on them that goes like “This is a Tontine fresh pillow. With normal use we suggest changing it by December 2014.”

Who would have thought to change the pillow you bought years ago? But Tontine is effectively changing that habit, by reminding you that the pillow needs to be changed every two years. By stamping a due date on the pillow, it serves as a cue every time the pillowcase gets removed for a wash.

Now suddenly after the pillow’s “expiry” you find you are not sleeping so well, worried about how viruses and bacteria can enter from your eyes, nose, ears, mouth. For Tontine, whether people buy a new pillow immediately after the expiry or after sometime, they have created a sense of product redundancy and improved their chances of repeat purchase.

Do you face a similar issue in getting your customers to buy more often?

Source: Bri Williams’ ‘22 minutes to a better business

Small ideas make a big difference

Small ideas make a big difference

There are lots of small everyday things that could benefit from being designed better. Things we take for granted in everyday life. But when designed well, things just work, leading to enhanced experience, satisfied customers, appropriate actionability, increased sales, etc. This post is about few of such small everyday ideas.

Like handles on doors. If there is a handle on the door, the tendency is to pull it. But almost all doors have a handle on the side it says push, too. If the door needs to be pushed, why have a handle? Simply keep it flat and we’ll push it.

When composing emails, wish there was a reminder to attach our files, when words like ‘attached’ or ‘attachment’ were found in the composed email.

‘No Parking on Odd dates 1 3 5’ and ‘No Parking on Even dates 2 4 6’ tend to be so cumbersome. We need to first think about what date it is today, then figure that its ‘No Parking’ on that side, which means we can park on the opposite side. Instead what if we had ‘Parking on Odd dates only’ and ‘Parking on Even dates only’.

Because there are two traffic signals in view at all times, one after the zebra crossing and one much ahead on the other side of the junction, we Indians always push ahead wanting to be first (in whichever race that is) therefore not stopping at the zebra crossing and not allowing pedestrians to cross. So to get cars to stop at the zebra crossing, only one traffic signal needs to be there, placed just before the stripes begin.

Instead of having to choose from financial retirement plans with complicated numbers, what if we could choose, by looking at pictures of different homes (1, 2, 3, 4 BHK) that could be bought with different levels of retirement income.

I often get asked about what mega-pixel camera on the phone is good. Fact is that we don’t understand what mega-pixels mean. What will be useful to us is the information of what mega-pixel matched what size of print. But we know this one won’t happen, else phone and camera manufacturers won’t be able to convince us to mindlessly upgrade.

Remember using the plastic card key in your hotel room to start and switch off the power. Wouldn’t it be convenient to have one in our home, so that we could start/switch off the power with one stroke and do away with the nagging feeling of not having turned off the geyser or gas or some other appliance after leaving home?

The tendency is to think of these design ideas as small (insignificant) ideas, but they are the ones that make for the most awesome product, service experiences and of course get us to behave.

The way a restaurant bill gets split affects what’s ordered

The way a restaurant bill is split affects whats ordered

How do you split the bill while eating out at a restaurant with friends? Equally? Or depending on whose had what?

In Germany diners usually figure out the price of their individual bills and no one feels bothered. But in Israel or US or India for that matter, such behaviour may be considered rude. Irrespective, the interesting part is how splitting the bill affects ordering behaviour.

Behavioural economist Uri Gneezy and colleagues divided students who didn’t know each other, into 3 groups of diners, based on how they paid the bill. In the first group, six diners (three men and three women) paid individually. In the second, they split the bill evenly. In the third, the researchers paid for the whole meal.

Turns out, the way you split the bill affects what you order. Of course people ate the most when the researchers paid. But when it came to the equal bill-splitting group, people tended to order more expensive items, than they did when each person paid for his or her own meal. Because for every rupee/dollar they ordered, they had to pay only one-sixth of the cost. So why not order the most expensive dishes? It’s about the incentives, not about individual personalities.

Uri Gneezy, says, “This is an example of negative externality – someone else’s behaviour affects your well-being. Let’s say you are a non-smoker, and a smoker sitting next to you decides to light up. He enjoys his cigarette, but you are also ‘consuming’ his smoke. The guy smoking has bestowed a negative externality on you. The party consuming the goods is not paying all of its cost. In the bill-splitting situation, the person enjoying the large, expensive lunch is doing the same thing. People simply react to the incentives they are facing.”

Source: Uri Gneezy, Ernan Haruvy and Hadas Yafe – The inefficiency of splitting the bill – Economic Journal 114, no. 495: 265-280 (April 2004)

When more choice leads to lower sales

When more choice leads to fewer sales

You may be thinking what a crazy thing to say. After all, which marketer doesn’t benefit from more choices? Take a look at ice-cream parlors. When we visit them we’re often faced with varieties of flavors from chocolates to mint to fruits to natural essences to dry fruits, with so many variants within each flavor depending on the parlor we visit. And the more extensive the varieties of flavors, the better publicity the parlor could generate and could even make it a unique feature of the brand. Moreover the consumers also get to enjoy sampling and choosing the flavors they would like to try. Offering such an extensive choice is helpful when consumers are likely to know exactly what they want and are simply looking for a store or business that supplies it.

But few product categories and companies find themselves in the position of having hordes of consumers salivating at the opportunity to choose from their wide selection of goods and services. More prevalent is the case, that consumers don’t know precisely what they want until they have surveyed what’s available. Take the example of mutual funds in India. There are more than 40 companies providing them with over 4000 schemes to choose from. Now imagine the error-laden short cuts that consumers must be taking to make their choice, if they haven’t already been overwhelmed in the first place.

Behavioural scientist Sheena Iyengar and colleagues Huberman and Jiang analyzed retirement programs of 8,00,000 workers in the US and found that the more choices that were offered, the less likely the employees were to enroll in the program at all. To mention one specific comparison, they found that when only 2 funds were offered, the rate of participation was around 75%, but when the 59 funds were offered, the participation rate dropped to about 60%.

When so many choices are made available, to consumers who don’t know exactly what they are looking for, they find decision-making frustrating due to the burden to having to differentiate so many options to be able to make the best decision. This results in disengagement from the task at hand, leading to an overall reduction in motivation and interest in the product.

In another experiment Sheena Iyengar and Mark Lepper set up a display at a supermarket in which passersby could sample a variety of jams that were made by a single manufacturer. Either 6 or 24 flavors were featured at the display at any given time. Results – only 3% of those who approached the 24-choice display actually purchased any jam. In comparison 30% bought when the choice was between 6 flavors.

If you are in a similar situation or sell many variations of your product, you may want to consider a reduction in the number of options provided by your business in order to increase your sales. Other healthy side-effects could also include reduction in marketing spends that support a smaller portfolio, reduced spending on raw materials, more storage space, etc.

Sources: S.S. Iyengar, G. Huberman and W. Jiang – How much choice is too much? Contributions to 401(k) retirement plans – Pension design and structure: New lessons from Behavioural Finance, Oxford University Press: 83-94 (2004)

S.S. Iyengar and M.R. Lepper – When choice is demotivating: Can one desire be too much of a good thing – Journal of Personality and Social Psychology, 79:995-1006 (2000)

Talk on Investor behaviour (Franklin Templeton)

Talk on Investor behaviour for Franklin Templeton

We spoke on Investor Behaviour at Franklin Templeton’s Independent Financial Advisor convention in Bali on 12th December.

Our presentation was about investor’s biases, heuristics and rules of thumbs. We also conducted a live auction that brought alive our irrational behaviour amongst the audience who participated in it.

The rest again is confidential material. But we will be posting many articles on behaviour – consumer, employee, shopper, investor, public that we promise.

Have an awesome year.

 

 

Behavioural Design for The Economist

First commercial Behavioural Design

In a pilot for The Economist India, Briefcase demonstrated 20% savings of the customer retention budget.

In the challenging environment of magazine subscription renewals, Briefcase achieved similar subscription renewals as existing levels, but at 20% lesser cost. Thus demonstrating a 20% savings in the customer retention budget.

The rest of course is confidential.

Why rich people bargain with poor vegetable vendors

Why rich people bargain with vegetable vendors

We find this situation pretty much every time we go to the vegetable market (anywhere in India). But in reality its not just rich people who behave irrationally, it’s everyone. Two stalwarts of behavioural economics – Daniel Kahneman and Amos Tversky – explain such behaviour with the help of the following example in their paper “The framing of decisions and the psychology of choice” published in Science in 1981.

Suppose you have two errands to run today – to buy a new pen and a suit for work. At a stationary store, you find a nice pen for Rs. 250 (in the original paper the amounts are different and in $). You are set to buy it when you are told that the same pen is for sale for Rs. 150 at another store 10 minutes away. What would you do? Would you take the trip to save Rs. 100? Most people faced with this dilemma say they would take the trip to save Rs.100.

Now you are shopping for your suit. You find a luxurious gray pinstripe suit for say Rs. 5000. You are about to buy it when another customer tells you that the exact same suit is for sale for Rs. 4900 at another store 10 minutes away. Would you make the 10-minute trip? Most people say they would not.

What’s going on here? Is 10 minutes of your time worth Rs. 100 or not? Whether the amount from which this Rs. 100 will be saved should be irrelevant. But in comes the problem of relativity.

We make comparisons which are easy and available locally. We compare a cheap pen with an expensive one and this contrast makes it obvious to us that we should spend that extra time to save Rs. 100. At the same time, the relative advantage of the cheaper suit is very small, so we spend the extra Rs. 100.

Says Dan Ariely, “This is why it is so easy for a person to add $200 to a $5000 catering bill for a soup entrée, when the same person will clip coupons to save 25 cents on a one dollar can of soup. Or a person will find it easy to spend $3000 to upgrade to leather seats when he/she buys a new $25000 car, but finds it difficult to spend it on a leather sofa.”

Now if we can think broadly about which transactions could help us save a lot, and how else we could use that saved money we’ll be using our money and time better. As far as vegetable vendors are concerned, that money you saved by bargaining is relatively a lot for them.

The science behind Facebook’s experiment

Priming influences us subconsciously

Read about Facebook’s experiment? The one in which they manipulated which posts showed up on the news feeds of 6,89,003 Facebook users. For one week, some users saw fewer posts with negative emotional words than usual, while others saw fewer posts with positive ones. People were more likely to use positive words in Facebook posts if they had been exposed to fewer negative posts throughout the week, and vice versa. Read about it here.

Love it or hate it, here’s the science behind the experiment.

Our behaviour is often influenced by sub-conscious cues. Priming shows that people’s behaviour may be altered if they are first exposed to certain sights, words or sensations. In other words, people behave differently if they have been ‘primed’ by certain cues beforehand. Priming seems to act outside of conscious awareness, which means it is different from simply remembering things.

Here are few other fascinating priming-related researches. Social psychologist John Bargh et al got participants in the first group to unscramble five words like ‘he it hides finds instantly’. For this group the random words were just to keep them busy, but for the second group, the sentences had lots of words, which were stereotypically associated with old people – old, lonely, grey, careful, wise, stubborn, courteous, etc. Then the two groups of people were made to walk a 9.75-metre strip. Those who’d been fed old-related words took a full second longer to cover the distance, than those who hadn’t.

Those primed were reminded about the idea of being old. Because we have habitual ways of thinking about old people – this idea got activated subconsciously and they acted in line with these stereotypes without even realizing it.

But we can improve people’s performance by just the same method. In another research, Asian-American participants were invited to take a test. Before they did, some were primed with the words that would activate stereotypes about Asian people, namely superiority at maths. This was done by flashing words on a screen for less than a tenth of a second: too quick to be perceived consciously, but slow enough for the subconscious to register.

Asian-Americans who had been primed with the stereotype got almost twice as many of the questions right as the other group. When researchers saw the data closely they found that after bring subliminally primed with an Asian-American stereotype, Asian-Americans attempted more questions. As if the stereotype made them try harder – a habit of persistence.

In another research asking participants to make a sentence out of scrambled words such as fit, lean, active, athletic made them significantly more likely to use the stairs, instead of lifts.

Says Jeremy Dean of www.psyblog.co.uk, “Everyday we are bombarded with subtle and not so subtle cues of how to behave. We process these automatically and subconsciously, and over time these impulses emerge as our habits, which we start performing without conscious thought.”

Feel like sipping some cocktail by the beach?

 

Sources: John Barg, M. Chen, L. Burrows – Automaticity of social behavior: Direct effects of trait construct and stereotype activation action – Journal of Personality and Social Psychology 71, no. 2 (1996): 230

M. Shih, N. Ambady, J.A. Richeson, K. Fujita, H.M. Gray – Stereotype performance boosts: the impact of self-relevance and the manner of stereotype activation – Journal of Personality and Social Pyschology 83, no.3 (2002): 638

Wryobeck and Chen (2003) Using priming techniques to facilitate health behaviours. Clinical Psychologist 7:105108.

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